Auto Industry Races to Comply with Conflict Minerals Rule

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As automotive manufacturers and suppliers work to meet a compliance deadline next spring to meet a conflict minerals reporting requirement of the Dodd-Frank Act, some are questioning how far they can effectively drill down for data. The rule requires public companies to disclose whether the sourcing of conflict minerals in their products benefited armed groups responsible for human rights violations.

Numerous components of a vehicle may contain conflict minerals, including brake pads, fuel tanks, on-board electronics, radiators, and batteries. Auto manufacturers must identify the source and chain of custody for tantalum, tin, tungsten or gold (or 3TG) minerals by the May 31, 2014 first filing deadline.

To comply, automakers have to review their current supply chain process to evaluate each product and determine the extent of reporting requirements, which can be complex and involve significant time and resources.

“These minerals are not something that have been tracked, and visibility beyond Tier 1 suppliers (is low),” says Aaron Sikora, an automotive partner at PwC U.S., which has a large automotive practice in downtown Detroit. “It is a logistical challenge to get all that information in a short period of time, trying to find the right person and get through all the levels of the supply chain.”

According to the recent PwC “Conflict Minerals Survey,” 42 percent of respondents have started to develop or already have an agreed-upon conflict minerals policy, while one-third of respondents have not yet talked about developing one. Thirty-one percent of survey takers said that one of the main challenges to complying with the conflict minerals requirement is obtaining accurate and complete information from suppliers.

Despite the challenges, Sikora projects the overall rate of compliance will “be extremely high.”

“I don’t think these companies want to take the risk of putting their reputation on the line,” he says.

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